What's been spent so far

to "smooth the movements of the exchange rate"...

October US$13'096 million
November US$ 1'285 million
December US$ 797 million
January US$ 988 million
February 1-20 US$ 2'307 million

that's US$18'473 million, more than a fifth of Mexico's international reserves on December 31, 2008.

Mexico's balance of payments for 2008

It's out! The annual figures don't look bad, but !ojo! with the fourth quarter numbers. What you see in the fourth -- which is a better guide to the present -- but not in the annual figures are two especially significant changes:

1) Massive outflows of portfolio investment in the fourth quarter. Foreigners fled both equities and money markets.

2) Substantial repatriation of assets held abroad in the fourth quarter, a sharp contrast to the first three quarters when assets held abroad continued to climb.

Bad and getting worse...

At 25, February's consumer confidence reading in the US is the lowest recorded since the inception of the index in 1967.

As bad as things are, consumers only expect them to get worse. Almost half (47%) of people surveyed expect fewer jobs over the next six months; that's up ten percentage points from January's read. Over two-fifths of those surveyed expect business conditions to deteriorate over the next six months, up from last month when 31% expected conditions to worsen.

More on the "N" word...

Alan Greenspan, former chairman of the Federal Reserve: “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.”

The "N" word...

The idea that nationalization is the most effective way to contain the financial crisis is gaining ground in the US. An editorial in the New York Times today argues that "it looks as if the best way to get from here to there [a sound privately owned banking system] is for some of the banks to spend some time in the government’s hands."

As the financial crisis drags on, the unthinkable is becoming "thinkable".

http://www.nytimes.com/2009/02/22/opinion/22sun1.html?th&emc=th

Banco de Mexico cuts Mexico's reference rate

As expected, the central bank cut the Mexican reference rate this morning. What wasn't expected was that the reduction was only 25 basis points (1/4% point) instead of 50 basis points. Banco de Mexico justified the reduction to 7.5%, arguing that growth is more of a problem than inflation.

The US$787 billion stimulus package

Larry Summers, the White House's chief economic adviser, started out describing the stimulus as “timely, targeted and temporary”. He now describes it as “speedy, substantial and sustained.”

Banks fail, if not all the time, with some regularity

In 2008, 25 banks failed in the US, up from 3 in 2007. So far this year, 13 banks have failed -- 4 last Friday night.

Last year, about US$15 billion -- 4% -- of the assets of foreclosed banks were bad.

What Adam Smith had to say...

"When the profits of trade happen to be greater than ordinary, overtrading becomes a general error." Furthermore, "the rate of profit is always highest in the countries that are going fastest to ruin."

From the head of the IMF...

From the IMF Survey Magazine (February 7, 2009), taken from a speech by the IMF's Managing Director, Dominque Strauss-Kahn:

"The United States and Western Europe could learn from the previous experience of countries like Korea, Malaysia, Thailand, and also Sweden, which set up public resolution agencies, and often recovered a lot of public money."

Sweden's "public resolution agency" nationalized those banks that couldn't make it, cleaned them up, then re-privatized them.

http://www.imf.org/external/pubs/ft/survey/so/2009/NEW020709A.htm

Oops

Treasury Secretary Geithner's long-awaited announcement didn't convince the markets, which see two major stumbling blocks. First, the money pledged isn't enough. Second, just how will the plan's different features be implemented? For example, what will bring private money into the public-private partnership part of the plan?

What's that asset worth? (continued)

The Congressional Oversight Panel, which was set up by Congress to monitor the use of TARP funds (aka, the bank bailout), released a report Last Friday. It concludes that the government overpaid for the equity it received in banks. The Oversight Panel "estimated the Bush Treasury Department spent US$254 billion to buy assets actually worth only $176 billion". That's a US$78 billion gift to stockholders.

What are those assets worth?

Is the question that no one knows what those toxic assets are worth or that they don't like the price?

Way back last July -- before things got ugly and before the government stepped in -- Merrill Lynch sold US$31 billion in securities on its books to Lone Star, a group of private quity funds. Lone Star paid US$0.22 on the dollar. There was more to the deal. Lone Star had to make a down payment equal to 25% of the purchase price but had the right to walk away from the deal if it turned out that the securities were worth less than the agreed price. If Lone Star walked, it would forfeit only the down payment.

Values in the financial sector

When Bank of America and Merrill Lynch inked their deal back in September, BofA agreed to pay US$50 billion in stock for Merrill. The market value of the combined companies then was US$176 billion. Now, it's about US$39 billion. And this, after the US Treasury committed US$20 billion more in capital to BofA a few weeks ago.

Treasury Secretary Geithner should announce the new Administration's strategy for attacking the financial crisis in a few days. The announcement was to be made tomorrow, Monday, February 9, but it looks like it has been postponed until the 10th. It's a very sticky political problem and, as events have demonstrated, there's no guarantee it will end the carnage.

How low can they go?

November auto sales were bad, December's were worse, and January's were just plain horrible.
"The heads of sales analysis for both GM and Ford said that the total industry will end with seasonally-adjusted annual sales rate, or SAAR, below the 10 million mark for the first time in more than 26 years. GM's Mike DiGiovanni said that January will mark the first month on record that auto sales in the United States trailed sales in China."

For comparison's sake, sales between 2005 and 2007 were running about 17 million new vehicles a year.

http://money.cnn.com/2009/02/03/news/companies/auto_sales/index.htm?postversion=2009020314

What is that asset worth?

An example of how an asset might be valued...

"The financial institution that owns the [mortgage backed] bond calculates the value at 97 cents on the dollar, or a mere 3 percent loss. But S.& P. estimates it is worth 87 cents, based on the current loan-default rate, and could be worth 53 cents under a bleaker situation that contemplates a doubling of defaults. But even that might be optimistic, because the bond traded recently for just 38 cents on the dollar, reflecting the even gloomier outlook of investors."

So, which price should the government pay (or guarantee) if it opts to buy (or guarantee) loans from banks?

Source of quote: http://www.nytimes.com/2009/02/02/business/economy/02value.html?th&emc=th